Look before U-Leap (ULIP)
Ranajoy Sengupta, a senior executive with a public sector firm, got a call from a tele marketer offering an investment plan in which he would need to put in a fixed sum every year for three years and get back double the amount after five years.
For a long time, Ranajoy had been wanting to secure his son’s higher education. He found the telemarketer’s proposal appealing and agreed to sign up for a scheme involving an annual subscription of Rs 50,000. He didn’t feel it necessary to learn more about the product.
Next followed the worry.
Ranajoy learnt that the product he bought was a unitlinked life insurance plan (Ulip) and he could not withdraw even part of his investment in the first three years.
Moreover, only a portion of his annual subscription would be invested.
The two-year payment holiday (the last two years during which Ranajoy won’t be required to invest anything) was also a half-truth because the agent didn’t tell him that an amount equivalent to his annual subscription of two years would be deducted from his accrued fund.
The accrued fund value after five years won’t be even equal to Rs 1.5 lakh that Ranajoy had paid in the first three years! The moral of the lesson is that one must beware when an agent comes up with such “novel” investment plans.
The telemarketer must be an insurance agent trying to sell a Ulip on a wrong pitch.
Read between lines Misselling of Ulips is rampant, despite several warnings by the Insurance Regulatory Authority of India.
Ulips are fairly new in the field of insurance — it was introduced in a big way five to six years back.
A sustained boom in the stock markets in the last five years prevented investors from reading the fineprints of the cost structure, risks involved and other critical features of the product.
Neither the insurance companies nor the agents help prospective policy buyers understand the cost benefits and the risk-return profile of Ulips.
The reasons are not far to seek. Companies push their Ulip schemes as investment products rather than as insurance products to gain a higher market share.
The sustained rise in equity prices helped in their sales pitch. Moreover, an insurance company needs to keep aside lesser capital as solvency margin if it has a higher proportion of Ulips in its product mix.
srinivas Said,
November 20, 2008 @ 9:49 pm
dear sir,
thanks very much for this service.
kindly post such articles.
ch.srinivas